Pangaea Logistics Solutions, Ltd.
Q4 2017 Earnings Call Transcript

Published: 22 Mar 2018

[Operator:]

Good morning. My name is Maria and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Pangaea Logistics Solutions Fourth Quarter and Full Year 2017 Earnings Teleconference. Our host for today's call are Mr. Ed Coll, Chairman and Chief Executive Officer, and Mr. Gianni Del Signore, Chief Financial Officer. Today's call is being recorded and will be available for replay beginning at 11 AM Eastern Time. The recording can be accessed by dialing 800-585-8367 or 404-537-3406 and referencing ID number 5090958. All lines are currently muted. And after the prepared remarks, there will be a live question-and-answer session. [Operator Instructions] It is now my pleasure to turn the floor over to Ms. Kathleen Bentley with Prosek Partners.

[Kathleen Bentley:]

Thank you, Maria. And thank you for joining us for this morning's fourth quarter and full year 2017 earnings conference call for Pangaea Logistics Solutions. With us today from the company are Chairman and CEO, Mr. Ed Coll, and Chief Financial Officer, Mr. Gianni Del Signore. Before I turn the call over to Ed, I'd like to read the Safe Harbor statement. This conference could contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about Pangaea Logistics Solutions. Forward-looking statements are statements that are not based on historical fact. Such forward-looking statements are based upon the current beliefs and expectations of Pangaea Logistics Solutions' management and are subject to risks and uncertainties, which could cause the actual results to differ from the forward-looking statements. Such risks are more fully discussed in Pangaea Logistics Solutions' filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks. Pangaea Logistics Solutions does not assume any obligation to update the information contained in this conference call. Also, please recall that a supplemental slide presentation will accompany this call. Those slides can be found attached to the 8-K that was filed with last evening's release, which is available on the Investors section of www.pangaeals.com under company filings or on the SEC's website at sec.gov. Now, I would like to turn the call over the Pangaea Logistics Solutions' Chairman and CEO, Mr. Ed Coll. Ed?

[Ed Coll:]

Thanks, Kathleen. And good morning to all of you and thank you for joining us on the call. This morning, I'll provide an update on our operations and the overall market before turning the call over to Gianni, our CFO, to provide a more detailed overview of the fourth quarter and full year financials. We'll the open the line for questions. We hope that you had time to review our press release and accompanying presentation, which were issued last evening. 2017 marked a significant recovery for the dry bulk market and we at Pangaea had a very strong year. Our revenue saw a substantial increase year-over-year $385.1 million from $238 million. Cash flow from operations increased significantly from the previous year to $29.2 million and our cash and cash equivalents totaled $34.5 million at the close of 2017. Gianni will review the numbers in more detail. But I’d like to point out, the overall performance we have quietly achieved over the last two years, while most of the industry was hobbled by record losses and debt restructurings that have only postponed more pain. During this period, we have improved our cash balances with real operating profits, paid our debts on time, expanded our fleet and our service capabilities and positioned ourselves to achieve even better success in the future. During 2017, we among other achievements took delivery of two Ultramax Ice-Class 1C dry bulk carriers from the Oshima shipyard in Japan, purchased two other ships for our fleet, the Bulk Freedom and the Bulk Pride, executed the sale in [ph] charter back of two vessels, our Bulk Destiny and Bulk Beothuk, issued a private placement of approximately 6.7 million common shares to help fund our continued growth and so our motor vessel Bulk Patriot complete its 100 voyages along the Mississippi River. We like our position moving into the upcoming shipping market. We'll continue to opportunistically approach the recovery in dry bulk market by increasing the scope of our contract and project work, while leveraging our all-weather business model to be well positioned across all market cycles. Our strong 2017 results illustrate our progress in executing against our strategic priorities. And we look forward to continuing on this path of maximizing service and performance for our customers, business partners and shareholders in the coming year. Our major institutional investor, Cartesian Capital recently expressed continued confidence in Pangaea by saying that they have no present intention to sell Pangaea shares. We thank them for their vision, patience and support. 2018 started out nicely for us with the market building steam and the cold winter into Europe – in Europe benefiting our ice trades. We look forward to talking with you at our next earnings call. I'll now turn the call over to Gianni to discuss our financials for the past year in greater depth. Gianni?

[Gianni Del Signore:]

Thank you, Ed. And thank you all for joining us on today's call. I will now turn to our financials for 2017, which begin on Slide 9 of our presentation. Total revenue for the year was $385 million, a significant increase when compared to $238 million for the same period in 2016. The revenue increase was primarily due to the improvement in market rate stemming from increased demand which resulted in an increase in shipping days, further worldwide dry bulk fleet growth increased at a lower rate. A deeper look into the breakdown of our revenues shows that voyage revenue which make up 88% of our revenues increased 52% to $337 million compared to $222 million for the same period in 2016. This was largely driven by the improving market for dry bulk transportation and a rational dry bulk fleet growth. At the conclusion of 2017, the Baltic Dry Index finished up 269 points from December of 2016 and up 913 points from the all time low set in the first quarter of 2016. The increase in demand reflected by change in the index supported the strength in voyage revenue by driving voyage days up 29% to 15,422 from 11,912 in 2016. Simultaneously charter revenue nearly tripled, posting an increase of 198% to $47.4 million from $15.9 million from 2016. The increase in charter revenue was driven by the 93% increase in time charter days and to the improvement in market rates. The number of time charter day's increase to 3,924 days for the fiscal year ended December 31, 2017 compared to 2,033 days for the same period in 2016. With regard to our chartered in tonnage, we effectively executed our strategy to capitalize on the increasing rate environment by extending chartering periods which we were then able to employ at higher rates. This deferred to 2016 when we stayed focused on limiting our exposure to the decreasing rates by chartering [ph] investors only to meet the demands on specific COA’s and voyage contracts. This flexibility in our charter-in strategy allowed us to react to changing market conditions. Turning now to our expenses for the fiscal year, voyage expenses for 2017 were $160.6 million compared to $103.6 million for 2016, an increase of approximately 55%. The increase in voyage expenses heavily impacted by the 69% increase in bunker fuel that resulted from the 29% increase in voyage days and an increase in oil prices. Our charter hire expenses increased 109% to $133 million compared to $63.7 million for the fiscal year 2016. This increase in expenses was due to the improvement in market rates and a 51% increase in the number of charter-in days. Adjusted EBITDA for the year was $40 million compared to $27 million for 2016. And net income attributable to Pangaea Logistics for 2017 was $7.8 million, after recording a $9.2 million loss on sale leaseback. Moving onto the balance sheet and cash flows, which you will find on Slide 10. Cash and cash equivalents were $34.5 million for 2017 compared to $22.3 million in 2016. During the year we took advantage of sale leaseback financing arrangements and issued shares through a private placement to generate cash for operating investment activities. In addition, as Ed mentioned earlier, we continue to pay down debt, expand our fleet and we've positioned ourselves for continued success. In summarizing our fourth quarter results. We recorded net income of $4 million compared to $0.1 million during the fourth quarter of 2016. Total revenue increased from $70.8 [ph] million to 102.2 and total shipping days increased by 38%. Income from operations was $6.7 million compared to $0.8 million over the same period in 2016. And vessel operating expenses per day decreased 7% to 5,472 per day from $5,860 in the fourth quarter of 2016. I will now turn the call back over to Ed for any additional remarks before we get to the Q&A portion of the call. Ed?

[Ed Coll:]

Thank you, Gianni. As you can see, we're pleased with how we were able to take advantage of upwards momentum in the markets and showcase strong execution of our strategy. We look forward to providing you with updates on our business, continued progress over the coming quarters and we’ll now open the floor for questions.

[Operator:]

[Operator Instructions] Our first question comes from the line of Poe Fratt of NOBLE Capital Markets. Poe, your line is open. Make sure you're not on mute.

[Poe Fratt:]

I apologize, I was on mute. Thank you. Good morning. I was hoping you could clarify or give us a little more color on how the first quarter is going. Your comment on about cold weather in New York and Europe helping - or you know getting the year after - to a good start?

[Ed Coll:]

Okay. Well, thank you. Thank you for the question. I think we have seen that the markets sort of have turned in general, which is positive for - excuse me, doing different things. You know, the weather affects us of course in different ways and because we're associated with the cold weather trading it can be quite helpful for us. I mean, with our Ice Class fleet in Europe that's gone very, very well. And with – if we do some things in the salt [ph] business and that’s I can tell you from where we live, probably we lived as well. I mean, we've gotten hammered this winter and that's helped our operations from our earnings. You know, so - you know the weather in our case the worse it is. It's sort of the better for us in all our operations.

[Poe Fratt:]

Yeah. Hopefully everyone made it into work today with Shelby [ph] out there.

[Ed Coll:]

We had no snow. We had zero snow unlikely - unlike many of you.

[Poe Fratt:]

And can you Ed talk about sort of your target for your premium on the time charter rate. You know, the fourth quarter came in just a little bit under 1200 bucks, you know, up from the third or fourth quarter last year, but down a little bit from the third quarter sequentially. Can you just give or talk about the target for 2018 as far as the premium? And then also give us color on you know, you operated like, what 53 vessels during the year and sort of a target for 2018 if you wouldn't mind?

[Ed Coll:]

Okay. I think that our margins have consistently over the years has been much, much better than the market and its for a combination of reasons that anyone who follows the company knows, which is our focus on different backhaul trading and different other things and keeping the shifts always - always loaded. I think that you will see that those margins continue you know, regularly as they have for years to be well in excess of the market. And going forward we expect that to continue. You know, we were continually on projects that will add to the growth of the business. And you know, sometimes that comes in the longer term than quarter-by-quarter. But we're constantly working on things that will increase the – our volume, the number of ships on the water. But one of the things I can say also is one of the strengths that we have is if we don't want to do something, we simply don't do it. And one of the transitions that’s kind of happened in the market as it's gotten better is there quite a lot of charters and industrial users who - when they came back for COAs they discovered people wanted a lot more money for them and they left themselves to shortage [ph]. So you know, we haven't been pulled into doing things that are not profitable. So I am very optimistic going forward this year that we'll have a good viable business and good margins.

[Poe Fratt:]

And to that extent, have you’ve seen any shift in the cargo markets, you know, anything particularly noteworthy as we look at 2018 versus 2017 or even 2017 versus 2016?

[Ed Coll:]

I think if you look at the way its turned things are cooking on all cylinders, in terms of the demand in China has been pretty good, Europe has been pretty good, United States has been very good. And if you combine that with a gradual reduction in new building deliveries and the results are you know, rising - rising markets. So there’s a lot of difficulties with people being able to expand their fleets simply because they were decimated in recent years, okay, and the bank financing is not readily available for most people. So unless you have big wads of cash it's difficult for people to order for a new vessel and of course, that comes with timing, you could – it’s going to take you couple of year to get a shift. So - and then also with regulation – regulations changing and a lot of uncertainty on that side of it, I think the supply side its not going to grow in the medium term. I mean, that we’re pretty lucky because we said, we - you know, we’ve always paid our bills, we’ve always paid our interest, we’ve always paid our debt to all the banks. And so we have no trouble if we want our money in anyway. Most people have a lot of trouble doing that and they technically remain under water with big problems. So I think we’re pretty excited about the opportunities for us going forward.

[Poe Fratt:]

Great. And you highlighted the major support of Cartesian, I just want to clarify too that - Ed that included in the filing was you know, management shares and I just wanted to also hear whether that management also doesn’t intend to sale any shares over the near term too?

[Ed Coll:]

No, that’s correct. I mean, we all feel that the share price is way under valued and you know, as a major shareholder in the company and the founder of the company, there will be no reason to do that at levels such are far less than the value of the company. So its pretty common sense for everyone that’s involved.

[Poe Fratt:]

Great. Thank you very much and I’ll turn it back.

[Ed Coll:]

Thank you.

[Operator:]

[Operator Instructions] At this time, I am showing we have no further questions. I’ll turn the floor back over to management for any additional or closing remarks.

[Ed Coll:]

Okay. Well, thank you to everyone for taking the time to join us this morning and have a great day. Thank you.

[Operator:]

Thank you, ladies and gentlemen. This does conclude today’s conference call. You may now disconnect.